Disadvantages Of The Euro

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The Euro can be determined as the official currency of the Eurozone. In this context, it includes 19 member states of EU. It was in the year 1998 when European leaders agreed on introducing 11 countries to the euro. There are many benefits that countries get with single currency. It includes the cost related to changing currencies which is eliminated. Further, there is price transparency and eliminates exchange rate uncertainty. On the other hand, there are disadvantages that includes transition cost, single policy effects other countries. The most common exchange rates implemented are the floating, pegged and fixed exchange rate. The pegged exchange rate is implemented through matching your exchange rate to another usually more stable currency such as the euro or the dollar. Whereas a fixed exchange rate is implemented through the government or the central bank. Lastly the floating is set by the FOREX. PPP (Purchasing Power Parity) is a type of economy theory in which the price level of two countries needs to be same to each other and that also after exchange rate adjustment. Main aim of this theory is the law of one price. For example, they aim at making the cost identical good to be same in the world. ‘prices of goods sold in different countries, converted to a common currency, should be identical’. As shown in this theory, if there is large difference between the price of same products among two countries even after exchange rate adjustment, then there is arbitrage
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